New England Biz Law Update
Barely a year since the state Legislature approved a clarification of the Massachusetts Wage Act mandating treble damages for wage and hour violations by employers, attorneys who represent them remain troubled by the modification, insisting it is unfair to their clients and may be harmful to an already strained economy.
Adding fuel to the fire of their opposition, a statewide business group, in an attempt to eliminate the mandatory imposition of the damages, is seeking a rollback to a discretionary system of imposing penalties for failure to properly compensate employees.
The Wage Act change, passed by the Legislature last April and effective as of July 13, grew out of a 2005 Massachusetts Supreme Judicial Court decision, Wiedmann v. The Bradford Group, Inc., et al., that suggested triple damages might be discretionary and not mandatory.
Boston employment attorney Philip J. Gordon, who helped draft the wording of the new measure, said that the SJC, in Wiedmann, cited the lack of the words “shall” and “may” in the treble-damages provision of the act and left it to courts to find “evil motive or reckless indifference” on the part of an employer accused of failing to pay employees what was owed them.
“That would have been hard for an employee to prove,” said Gordon, who, in the wake of Wiedmann, set to work on the mandatory treble-damages language now in the act.
The legislative victory achieved by Gordon and other advocates of the toughened wording riled attorneys who represent employers, including Richard L. Alfred, who chairs Seyfarth Shaw’s national wage and hour litigation practice group in Boston.
“This statute is going to do enormous harm to the Massachusetts economy,” Alfred said in a Massachusetts Lawyers Weekly story on April 21, days after the Legislature enacted the change to the Wage Act.
Eleven months later, Alfred sounds no less critical in his assessment.
“As a lawyer who represents companies in the defense of wage and hour cases, I remain very concerned for my clients in Massachusetts about the impact of the law because the company that is sued is now exposed to potentially catastrophic damages,” he said.
He appears to have an ally in the Associated Industries of Massachusetts, which has filed a bill for consideration this legislative session that would make “only willful violations” of wage and hour requirements subject to treble damages, said John R. Regan, AIM’s executive vice president for government affairs.
“One of the things we’ve learned in training our members … is that it’s not hard for employers to make mistakes [under] a statute that is very complex and convoluted,” Regan said. “What we’re trying to do is re-create the distinction between deliberate harm and clerical mistakes.”
Regan said he expects that AIM’s bill will find its way to the Legislature’s Committee on Labor and Workforce Development for a hearing.
“We will work with them to make our case,” he said, signaling that the battle over just how much in damages employers should be forced to pay and for what degree of violation has once again been joined.
‘Not one of the tougher states’
Predictions by Alfred and others that Massachusetts would be a highly sought- after jurisdiction for class-action plaintiffs who lodge complaints against employers for Wage Act violations apparently have not been borne out.
John F. Tocci, of Tocci, Goss & Lee in Boston, said he’s seen an “uptick” in Wage Act litigation but also in employment litigation generally, which he attributes to the economy.
“Anytime tens of thousands of Massachusetts employees are terminated, you’re going to have folks who feel they were wrongly terminated,” said Tocci, mentioning discrimination, breach of contract and non-compete agreements as some of the issues clients are bringing to his attention.
Superior Court Judge Stephen E. Neel, who sits in the Business Litigation Session, said he’s observed no noticeable increase in claims alleging Wage Act violations in the months since the treble-damages provision took effect.
“My sense is — and this is impressionistic — they are a small fraction of the cases we have,” Neel said. “And I certainly have not noticed any spike.”
According to Gordon, Massachusetts is one of several states, including Maine, Idaho, Ohio and Arizona, with treble-damages provisions in their wage laws. And, he noted, the statute of limitations for violations involving overtime payments in this jurisdiction is two years, while in New York it is six years.
“Even with the mandatory treble damages, we’re still not one of the tougher states,” he said.
Still, the mere threat, under the now-unambiguously worded Wage Act, that an employer could be hit with treble damages is having an effect, according to Tamsin R. Kaplan, who represents employers and employees.
“In my practice, the result is these claims are settling very quickly,” says Kaplan, of Belmont, Mass. “The amendment clarified the requirement [and] made it easier to take a look at these claims quickly because the penalty is clear.”
In other kinds of workplace-related claims, such as discrimination cases, “it’s less easy to settle,” Kaplan says. “The employers feel they’re in the driver’s seat.”
Like Kaplan, Boston employment attorney Terence P. McCourt, of Greenberg Traurig, is seeing wage and hour claims settling before or early in the negotiation phase of the cases. But he said those speedy settlements are a troubling development for his employer clients.
“They have reached an agreement that is less favorable than it would have been prior to enactment [of the Wage Act clarification] because of the threat of treble damages,” McCourt said. “They’re doing the math and seeing it’s more sensible [to settle] than go to trial” where they might also be liable for attorneys’ fees.
On the positive side of the ledger, he said, “the new law has caused a number of employers to more carefully scrutinize their policies — particularly employers with sales-commission employees — just to make sure they’re in compliance.”
Reconsideration by governor?
Foley Hoag’s James W. Bucking, who represents employers, is unsparing in his criticism of the mandatory treble damages, describing them as “part of the criminalization of human resources.”
The pointed wording in the amendment, he said, “is one of a dozen changes to the Wage Act that’s made it less and less friendly for employers” and reflects the Legislature’s “more traditional view” of wage and hour cases.
“It was not intended to cover the more modern business cases,” said the Boston lawyer.
Similarly, Alfred said that virtually all the cases he works on involve subtle and nuanced violations, such as the misclassification of exempt employees, “where the law is unclear, where the courts have differed and where reasonable lawyers might differ on the interpretation of and application of an exemption.”
Alfred further argued that many of those exemptions are complicated to apply, “and employers very often have to make a decision today that requires coming up with the best possible solution to a particular issue.”
Such cases, Alfred said, “can run into millions of dollars for single damages.”
Alfred said he is hopeful that Gov. Deval L. Patrick, who balked at signing the Wage Act amendment after the Legislature passed it and, in so doing, allowed it to take effect without his blessing, will reconsider his position.
Gordon, meanwhile, is unwavering in his support of the provisions of the statute, touting their ability to ensure that employees are properly compensated and, in turn, ensure that the state will benefit from the tax revenue withheld from workers’ wages.
“It also levels the business playing field,” Gordon said, by barring employers from underbidding competitors in the compensation of their employees.
In a February 2008 letter to Patrick, in which he sought to enlist the governor’s support for the measure he helped draft, Gordon took issue with the notion, now being advanced by AIM, that many of the mistakes employers may make, in not fairly or promptly compensating their employees, are clerical in nature and not deserving of harsh penalties.
He insisted that the process entailed in seeking treble damages is so lengthy and demanding that it filters out the innocent mistakes well before an employer would be forced to pay treble damages.
“One can only recover treble damages after going through a process of filing a complaint with the Attorney General, waiting up to 90 days, then filing a case in court and proving that the employer failed to pay wages,” Gordon wrote. “Only then, would an employee be entitled to treble damages, and only for those wages she could prove were still due. Most, if not all, ‘honest’ mistakes would be cleared up long before then. So, the term honest mistake really means careless employer, and no employee should suffer the damages of such carelessness without compensation.”
